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Two-sided market, R&D, and payments system evolution

Bin Grace Li, James McAndrews () and Zhu Wang

Journal of Monetary Economics, 2020, vol. 115, issue C, 180-199

Abstract: It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a two-sided market setting. We calibrate the model to U.S. payment card data and conduct welfare and policy analysis. Our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes, and the welfare impact of regulations may vary significantly through the endogenous R&D channel.

Keywords: Two-sided market; Technology adoption; R&D; Payments system; Interchange fee (search for similar items in EconPapers)
JEL-codes: E4 G2 O3 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Two-sided Market, R&D and Payments System Evolution (2019) Downloads
Working Paper: Two-Sided Market, R&D and Payments System Evolution (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:115:y:2020:i:c:p:180-199

DOI: 10.1016/j.jmoneco.2019.06.005

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